Outlook 2013: Year of the driver

Face it. The long-haul trucker is king of the road. And in 2013, he will reign only more supreme. Thanks to changes in demographics, regulations and economic indicators, this year should shape up to be the biggest “year of the driver” since before the start of the Great Recession.

Whether a fleet owner regards the driver issue as one of simply too much employee turnover or the result of an out-and-out shortage of qualified workers, much can be done at the carrier level to at least mitigate the crisis to a level manageable over time.

But make no mistake, the shortage is already severe. “Despite an unemployment rate hovering in double digits, motor carriers report having tremendous difficulty in attracting and recruiting drivers,” observes Gary Petty, president & CEO of the National Private Truck Council (NPTC).

Indeed, a recent American Trucking Assns. (ATA) study holds that the current driver shortage is “acute,” albeit limited primarily to the truckload sector, and long-term trends could cause the shortage to “explode” in the next 10 years.

The ATA study found that while the “bulk of the shortage was confined to long-haul, over-the-road truckload carriers,” less-than-truckload carriers and private fleets may have “some difficulty” hiring drivers, too.

ATA estimates the current shortage of drivers to be in the 20,000 to 25,000 range in the for-hire truckload market on a base of roughly 750,000 trucks—and it regards this shortfall as “significant.”

“On average, trucking will need to recruit nearly 100,000 new drivers every year to keep up with demand for drivers,” Costello adds, “with nearly two-thirds of the need coming from industry growth and retirements.”

And per the Bureau of Labor Statistics, the employment of “heavy and tractor-trailer truck drivers is projected to grow 21% from 2010 to 2020, faster than the average of all [other] occupations.”

What will make 2013, especially regarding long-haul drivers, markedly different than 2012 will be the confluence of key demographic, regulatory and economic factors that will tighten the market for these already highly sought-after truckers.

While the effect of demographic changes is ongoing and the regulatory actions are expected, economic activity will have the biggest direct impact on the driver situation.

But a big part of what may unfold economically can at press time be described only as “likely.” Right now, the crystal ball remains clouded. That’s because Washington has not yet sealed a bipartisan deal to avert sending the economy sailing over the so-called fiscal cliff—a truly political construction if there ever was one.

According to Federal Reserve Board chairman Ben Bernanke, avoiding the cliff would be the “most effective way Congress could help to support the economy right now.” And he stated in late November that 2013 could be a “very good year” for the economy—if Congress and the president move quickly to dismantle the cliff.

On the other hand, some analysts prefer such terms as “fiscal slope” and “fiscal ramp” because they contend the impact of Washington inaction would be drastic but gradual and, in some ways, reversible.

“The slope would likely be relatively modest at first,” wrote Chad Stone, chief economist at the Center on Budget and Policy Priorities think tank, in an analysis piece. It’s his view that a “relatively brief implementation of the tax and spending changes required by current law should cause little short-term damage to the economy as a whole.

“The federal budget is expected to shrink dramatically between 2012 and 2013 if the laws governing revenues and spending remain largely unchanged,” explained Stone. “With no action from policymakers, that sharp reduction in the deficit would slow the economy dramatically, likely creating a mild recession in 2013.”

However, he emphasized that even under that scenario “the economy will not go over a cliff and immediately plunge into another Great Recession” in January.

“Rather, most households will begin to receive somewhat smaller paychecks due to higher income tax rates and the expiration of the payroll tax cut, but the impact on their cash flow would play out over the year rather than being concentrated in January,” Stone pointed out.

“More important,” he added, “there is bipartisan support for extending most of the middle-income tax cuts through 2013, so the impact of a temporary expiration of the tax cuts on consumer spending is likely to be modest, given the very high likelihood that lawmakers will end up extending them retroactively to Jan. 1, if they haven’t acted by New Year’s Day.”

Economic Upswing

While all can hope that legislation will steer the economy entirely away from the cliff—or at the very least land it on a reversible fiscal slope—tried-and-true economic indicators otherwise suggest the economy will grow at a faster clip this year compared to last.

If not driven over the fiscal cliff or not overly impacted at any point by the ongoing Eurozone financial crisis, the U.S. economy will continue to grow into next year, albeit at a “modest pace,” according to ATA’s Costello and, in step with it, trucking will see “limited growth.”

That’s because he says “some economic fundamentals are looking better,” including most notably housing. “Housing is turning the corner so much so that in the next few years I would not be surprised if we have a housing shortage,” he contends.

“Once the job market improves and pay goes up, demand for housing will rise,” Costello points out. He adds that this is “already happening but at a low level,” which means trucking “will see higher volumes out of housing” this year.

But Costello says while manufacturing was up 5% in 2012, this year total manufacturing is projected to rise only 2.7%; with durable goods climbing 4.7% and non-durable goods going up just 0.8%. “We won’t see the same freight growth from manufacturers” as in 2012, he notes.

Put it all together and Costello expects that GDP “won’t get to 2% growth until the third quarter of next year.” Again, that is not factoring in the negative punch of a fiscal cliff or ramp.

Still, many fleets found it hard enough to secure enough long-haul truckers even in last year’s tepid economy. So, even modest economic growth will add to the challenge of finding and keeping enough qualified drivers this year.

Analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC), regards this year as the tip if not more of the looming iceberg that is the burgeoning driver shortage. “The supply of available drivers will again become acute when freight growth expands enough to require fleets to expand capacity,” he explains.

“The supply of drivers has not reached a crisis level since the Great Recession because fleet capacity has remained relatively stable due to the sluggish-to-moderate freight growth during the recovery,” Brady adds. “But a growing economy will spur fleets to expand capacity and thereby increase demand for drivers. “

The push of a growing, albeit modestly, economy won’t be the only factor heightening the driver shortage this year.

Graybeards

There’s the overarching demographic situation, which grows more prominent each year as more and more Baby Boomers retire out of the workforce in general. That is to say, as well-documented in the general media, the graying of the American workforce alone is helping to sharply drive up the driver shortage.

Indeed, according to ATA’s Costello, nearly two-thirds of the need for new drivers is coming from industry growth as well as retirements. “Demographics are changing the makeup of the U.S. labor force, and carriers must seek drivers beyond their traditional labor pools,” suggests CMVC’s Brady. “This will require different recruiting and retention techniques and probably changes in vehicle specs [to better accommodate women] as well."

“Truckers are projected to exit the workforce in a growing wave,” says NPTC’s Petty. “The first Baby Boomers turned 65 in 2012. And even as the Baby Boomers begin to retire, the pool of CDL-eligible 21-year-olds is growing at a slower rate. There is a gap between retirement-eligible U.S. males and CLD-eligible U.S. males.”

Petty also points out that “moderate growth in freight demand has made it difficult for many drivers who lost their jobs during the recession to return. Many turcking companies are simply hiring much more slowly than in previous recovery periods. "And," he adds, "many drivers who sought to work in other fiels appear content to stay in those jobs boy for pay and lifestyle reasons."

Big Brother

Frustration with existing as well as upcoming driver-related regulations is widely expected this year to literally drive more drivers right out of the occupation. And that will be going on even as changes in one rule in particular—hours of service (HOS)—will lead many fleets to up their count of trucks and, of course, drivers for them.

“The federal Carrier, Safety, Accountability [CSA] oversight program has taken out many drivers,” says NPTC’s Petty. “With regulations like CSA pushing the industry towards better quality drivers, demand for the best drivers will only increase.”

“Along with being concerned about CSA, many drivers, especially older ones, regard HOS tracking as a nuisance,” points out Ron Goode, director of education for the Truckload Carriers Assn. “And ‘Boomer’ drivers especially tend to be put off by the use of electronic onboard recorders.”

ATA strongly contends that certain government regulations— chiefly CSA and the yet-to-be-implemented HOS changes—will “exacerbate” the driver shortage. But it feels the transition to electronic logging by fleets is “unlikely to have a significant impact.”

“If the changes to HOS regulations are implemented in 2013, it will likely reduce motor carrier productivity by as much as 3%,” predicts ATA’s Costello. “As a result, carriers will have to add more trucks and drivers to haul the same amount of freight, thus exacerbating the shortage.

“The CSA program will likely add to the driver shortage as well,” he continues. “Recent data shows that approximately 7% of drivers generate a significant portion of the CSA scoring problems for carriers.

“While not all 7% will be pushed out of the industry overnight, over time, CSA and the related pre-employment driver screening program facilitated by the government will exacerbate the driver shortage, “ Costello contends.

On the other hand, he figures that the mandated use of electronic logging devices (ELDs, also known as electronic onboard recorders or EOBRs), is unlikely to intensify the driver shortage significantly.

“Data shows that about 4% of drivers violate weekly HOS limits,” he explains, “so the likely impact of ELDs on the shortage is relatively small.

“In addition, the vast majority of carriers that are voluntarily implementing ELDs today say that they can eventually boost efficiency because they can better match drivers with loads,” points out Costello. “In other words, electronic logs facilitate better driver and operations planning.

“However,” he adds, “there is a chance that a small number of current drivers will leave due to more government oversight with ELDs. But that number is unlikely to have a significant impact on the driver shortage.”

A long-in-place regulation is also troubling to those seeking to bring younger drivers into the long-haul fold before they settle on another career. That is the federal rule that prevents 18- to 21-year-olds licensed to drive tractor-trailers intrastate from operating interstate.

“Certainly, it would be something if we could get that rule changed,” remarks TCA’s Goode. “In every other profession, someone can enter the field right out of high school. But in trucking, qualified drivers have to legally wait three years to drive interstate. By then, those driving intrastate often have moved on.”

However, Goode does allow that he’s not heard of any truckload carrier “going down to age 21 to find drivers, and many have strict rules on the number of years of experience needed, even for those entering trucking who are older. Whether much is done to hire younger drivers really depends on the individual carrier.”

“Insurance carriers typically require a minimum age of 24 or 25,” observes Lana Batts, partner at Transport Capital Partners (TCP). “So, trying to start with younger drivers only works with firms like UPS,” which can and do provide a driver career path from entry level to big rig.

Time and Money

Whether one tackles the driver shortage by trying to get a handle on who is coming and going out of the industry or by seeking to decrease turnover—taming “churn”—or perhaps by following the wise course of doing both, fleet owners are learning that finding and keeping drivers really comes down to time and money. In other words, and this is surely no secret, long-haul drivers want more—and more regular—home time and, yes, they want to be paid better than they are for dealing with a work life spent out on the road.

“Generally, these factors are not so pervasive in the private fleet community,” remarks NPTC’s Petty. “With shorter lengths of haul generally and better pay, private fleets do a better job of retaining drivers than for-hire carriers. This edge will likely be retained.”

Petty reports that per NPTC’s latest Benchmarking Survey (August 2012), member carriers continue to report a retention and turnover performance far better than that of for-hire carriers.

“NPTC members report turnover of 10.9%, which is up ever so slightly from the 10.3% turnover recorded [in 2011],” he relates. “That bump-up reflects the increased number of drivers opting for retirement.

“In addition to recruiting, driver retention is likely to be an important battleground in coming years,” Petty adds.

According to Orban, by using computerized recruiting/ retaining systems driven by predictive analytics, fleet managers can “gain new insight into their drivers’ satisfaction and, in some cases, can even prevent a talented driver from walking away.”

He says recent customer experience indicates an 81% reduction in turnover with the use of FleetRisk’s driver-retention model. “By analyzing a fleet’s historical data, FleetRisk identifies drivers who are most likely to leave voluntarily in the next 28 days by pinpointing indicative behavioral patterns. Then the fleet can offer the appropriate remediation to retain them.”

Indeed, NPTC’s Petty contends that retention doesn’t just happen. “The average retention rate reported by NPTC members is 11.58 years,” he advises, noting that that impressive number results from “building a culture of retention” at fleets.

One of the reasons why retention remains so positive among private fleets is that they continue to be selective about driver age and experience when hiring, he points out. New hires must be 23 years of age and have at least 2.5 years of driving experience.

Once hired by the carrier, Petty says pay rates (as reflected in W-2 annual wages) that continue to “lead the industry” help keep drivers onboard.

Pay, of course, is only part of a compensation package. Paid benefits, such as family medical and 401(k) retirements plans, that carriers offer are also under closer scrutiny by truckers than ever before.

In terms of offering comprehensive compensation/benefit packages, private fleets tend to lead the pack, especially when they are an arm of a large commercial concern. Petty points out that private fleets “continue to back their compensation programs with relatively generous benefit packages.”

He says some 16% of the respondents in the recent benchmarking reported offering other benefits that included discounts on corporate merchandise, profit sharing, funeral leave, vision care, and tuition reimbursement.

At least 70% of the benchmarked private fleets offer these benefits: medical and dental insurance, short-term and long-term disability insurance, paid vacations and holidays, family-leave time, 401(k) programs, and life insurance.

About 55% of the respondents also provide sick time and nearly 40% a pension plan. And some 16% reported offering other benefits, such as discounts on corporate merchandise, profit-sharing, a funeral-leave policy, vision care and tuition reimbursement.

What’s more, 67% of the respondents now have a driver-wellness program, up from the 57% that had one over the last two years.

Money Shouts

As in most any career field, actual take-home pay still speaks the loudest to drivers. Leading on this key selling point clearly gives an advantage to private fleets at hiring time.

“Average pay for drivers in the private fleet community was reported at $60,021, up nearly $1,500 from the $58,784 reported in 2011,” Petty says. “And starting pay for drivers remained virtually unchanged at just under $50,000 in 2012, as did pay at the end of year one ($53,417).

“The upper limit for the most experienced drivers maxed out at more than $68,000 annually, a decrease of $14,000 compared to last year. But this is explained by the retirement of more highly compensated drivers,” he adds.

Truckload carriers are trying to pick up the pay slack. TCP’s most recent Business Expectations survey found that almost 50% of the truckload carriers questioned “expect that they will need to raise driver pay 2 to 5%.” And 25% of the carriers also plan to up pay, but by less than 2%. A much smaller percentage of carriers—just 3.3%—said they’d boost pay by 6 to 10%.

According to TCP, a key reason for carriers to hike driver pay is the reported number of “unseated trucks.” While that number varies by carrier size, in the survey overall, 75% of the carriers reported having unseated trucks.

TCP’s Batts states that “driver pay is indeed part of the answer—but it must be increased substantially enough to discourage job-hopping.”

She says fleets should consider that “guys will work on the North Slope [oil fields] because they are paid enough to overcome the disincentives of the job, especially being away from home for very long stretches.

“The reality is long-haul trucking with its time away from home—not to mention having to eat poorly at truckstops, etc.—makes it an unattractive job for many given the usual pay offered,” she stresses.

Batts concedes that shippers “do not pay more regardless” of carriers’ difficulty in recruiting. Nevertheless, she says if higher pay is ever going to solve the driver shortage, it will have to be substantially higher on average than where it is now.

“Going up two to three cents a mile just won’t do it,” contends Batts. “The industry needs to offer $80,000 [both to reduce churn and attract new drivers], which is where it should be now had pay kept pace with where it was in the 1980s. “If the economy does start to grow, then pay will increase,” she continues. “But bear in mind the shortage won’t be solved if pay, like it did in ’06, goes up just enough to encourage job-hopping.”

Alas, Batts doesn’t expect either the economy or pay shooting up anytime soon. “There would have to be a ‘mother of all’ capacity crunch for pay to really go up,” she asserts.

As Batts sees it, until pay can be high enough to be truly attractive, the “only practical approach is to change the nature of the job as much as possible, such as by moving more freight intermodally so truckers will be mostly handling the drayage.”

She says many carriers are working to figure out the best way to do this and cites the hub-and-spoke operation put in place by J.B. Hunt and the relay-type system deployed by Werner Enterprises as worthy examples. Batts does allow that there “must be a lot of activity in the lanes for this to work.

“Where the lowest turnover in truckload is found is in the regional operations that can get drivers home as they prefer— weekly and predictably,” she adds. “What it comes down to, then, is that carriers must pay drivers more or [at least] get them home more often” to make any kind of dent in the driver shortage.